- Whether where in a petition filed by respondent under section 397/398, CLB had come to conclusion that no case of oppression was made out by respondent, order of CLB directing company to purchase shares of respondent was abuse of process of CLB and, therefore, said order was perverse and unsustainable - Held, yes - Vardhaman Dye-Stuff Industries (P.) Ltd. v. M.R. Shah (Bom.) 220

Companies Act, 1956

- Section 397 220

Securities and Exchange Board of India Act, 1992

Board to regulate or prohibit issue of prospectus, offer document or advertisement soliciting money for issue of securities

- Whether in case of offer documents presented by entities against whom any regulatory action is contemplated or to whom show-cause notices have been issued, offer document is not to be withheld till disposal of proceedings against them, but relevant disclosures are to be insisted upon - Held, yes - In terms of scheme of amalgamation approved by High Court, transferor-company merged with transferee-company - Transferee-company issued equity shares to shareholders of transferor-company - As shares had not been listed since then, appellant (merged company) approached BSE for listing shares - BSE imposed a condition that shares would be listed only when promoters of appellant would divest at least 1.33 per cent of paid up share capital by way of an offer for sale in domestic market - Company ‘H’, which held about 62 per cent of shares in appellant-company, agreed to divest share capital in terms of condition imposed by BSE and, accordingly, sent a draft offer document to SEBI for its comments - SEBI, however, withheld draft offer till proceedings under section 11B against appellant, ‘H’, and others for violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, were concluded - Whether in normal circumstances, action of SEBI should not be interfered with in view of pending enquiries, but in view of fact that shareholders of transferor-company were stranded since year 2003 and shares, that were offered for sale, were very small percentage of total paid up capital and having regard to interest of public shareholders, SEBI was to be directed to proceed with letter of offer in accordance with law and issue a letter of observations in terms of guidelines - Held, yes - HFCL Infotel Ltd. v. SEBI (SAT - Mum.) 199

Penalty

for contravention where no separate penalty has been provided

- Respondent-Board, by an ex parte interim order, directed several entities including appellants not to buy, sell or deal in securities of one ‘M’ Ltd. - However, when said restraint order was in operation, certain shares of ‘M’ Ltd. held by appellant-company were admittedly sold - Accordingly, a penalty was imposed on appellants - On instant appeal, appellants contended that shares in question were lying with broker in its pool account and those were sold by mistake by punching operator who was operating terminal - Whether since director of appellant-company did not appear before adjudicating officer despite receipt of notices and at no stage prior to filing of appeal, did he ever dispute that he was not responsible for placing sell order on behalf of company, contention sought to be raised in instant appeal was only an afterthought which could not be accepted - Held, yes - Whether, therefore, appeal was to be dismissed - Held, yes - Ritedeal Trading Co. (P.) Ltd. v. SEBI (SAT - Mum.) 268

For failure to furnish information, return, etc.

- Respondent-Board issued show-cause notice to appellant for initiating adjudication proceedings against him for not complying with summonses requiring him to appear on appointed dates in respect of his dealings in scrips of two companies - In response to show-cause notice, appellant stated that he had never received any of those summonses and, therefore, there was no question of his having failed to respond to those summonses - He, however, furnished details of his trading in scrips of said companies along with statement of his demat accounts - Adjudicating Officer, however, imposed monetary penalty under section 15A upon appellant for said defaults - Whether since at no stage prior to passing of impugned order, was appellant informed either by Adjudicating Officer or by Board that he had been served with summonses during course of investigation, and that he had failed to furnish requisite information and, on facts, it could not be said with certainty that appellant had been served with summonses, benefit of doubt should be given to appellant and impugned order was liable to be set aside - Held, yes - Deep Kumar Trivedi v. SEBI (SAT - Mum.) 209

- During course of investigation into dealings in shares of two companies, investigating officer sought certain information from appellant - Appellant furnished information which it thought complete and adequate - Investigating officer did not inform appellant that information, which it had furnished, was incomplete or lacking in material particulars or that it was false - He, however, issued summons to appellant calling upon it to appear before him - Appellant did not appear in response to summons and claimed that it did not receive same - Adjudicating officer, therefore, held appellant guilty for not producing requisite information/documents sought from it by investigating officer and imposed monetary penalty upon it under section 15A - Whether when investigating officer, at no stage of investigation, informed appellant that information was ina-dequate/incomplete or incorrect or that he required further information/documents from appellant, it could be said that appellant had failed to furnish documents/ information sought from it by investigating officer - Held, no - Whether under section 15A, monetary penalty could be imposed only for non-furnishing of document and information and even assuming that appellant had evaded notices issued by adjudicating officer, that could not be a ground for him to levy monetary penalty under section 15A - Held, yes - Whether, therefore, impugned order was liable to be set aside - Held, yes - Coverage & Consultants Ltd. v. SEBI (SAT - Mum.) 227

For fraudulent and unfair trade practices

- Whether when two traders join hands and punch into system their orders with a pre-determined price for same quantity at almost same time, they obviously interfere with true price discovery mechanism of stock exchange, which is a serious market irregularity - Held, yes - Investigations carried out by SEBI in trading in scrip of a company for certain period revealed that appellant and one ‘N’ through their brokers, carried on circular trading in scrip of company and executed as many as 327 structured and synchronized trades - Adjudicating Officer imposed penalty upon appellant under section 15HA - Whether having regard to number of matching trades, finding of adjudicating authority was to be upheld - Held, yes - Gautam N. Jhaveri v. Adjudicating Officer, SEBI (SAT - Mum.) 242

For non-disclosure of acquisition of shares and takeovers

- Appellant Nos. 1 to 7, acting in concert with other appellants, had acquired more than 10 per cent shares of target company, but they did not make public announcement to acquire further shares in accordance with regulation 11 and, therefore, Adjudicating Officer imposed maximum penalty of Rs. 5 lakhs upon appellants - On appeal, appellants contended that they acted bona fide and, therefore, penalty was not leviable upon them - Appellants also contended that maximum penalty was not attracted in their case and adjudicating officer was in error in not considering factor that appellants had transferred entire shareholding in favour of new acquirers who made public offer at higher price and, thus, shareholders of target company had been compensated - Whether since violation of regulation 11 was admitted, penalty under section 15H(ii) had to follow and intention of parties committing violation was not relevant - Held, yes - Whether it was a mitigating factor that when new acquirers made public offer, only 20 per cent of shareholders of target company were compensated and had appellants also come out with a public offer, another 20 per cent of shareholders could have benefited and since that factor had not been taken into consideration by adjudicating officer, it was not a case where maximum penalty should have been levied - Held, yes - Whether having regard to facts and circumstances of case, quantum of penalty was to be reduced to Rs. 3 lakhs - Held, yes - Pravin Punit Agarwal - HUF v. Adjudicating Officer, SEBI (SAT - Mum.) 271

Securities Appellate Tribunal

Appeals to

- Respondent Nos. 1 and 2-companies, acting in concert with each other, had acquired shares of target company and came out with a public offer to acquire further shares in accordance with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - After getting green signals from SEBI, they proceeded with public offer to make payments to shareholders of target company who had offered their shares - There had been some delay on part of acquirers to make payments within stipulated period, but before SEBI could issue any direction regarding payment of interest, acquirers volunteered to pay interest at rate of 10 per cent for delayed period - Appellant, a shareholder of target company not satisfied with 10 per cent of interest, filed appeal seeking a higher interest - Whether since there was no order of SEBI giving directions to acquirers to pay interest on delayed payments, appeal was not maintainable - Held, yes - C.A. Arun Goenka v. Siemens Diagnostics Holding II B.V. (SAT - Mum.) 218

- Respondent No. l-company came out with a right issue in 2006 and as per SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued a draft letter of offer to shareholders - Appellant filed a complaint before SEBI alleging that disclosures made in draft letter of offer were not adequate and were misleading - SEBI, however, did not find any merit in said complaint and approved draft letter of offer - Subsequently, appellant filed an appeal before Tribunal and sought an order of interim stay to restrain respondent to proceed with its proposed right issue - Tribunal admitted appeal, but did not grant any interim stay and even objection raised by respondents regarding locus standi of appellant was also left open to be decided at final hearing - Whether since letter of offer having been approved by SEBI, rights issue was allowed to proceed, shares allotted in pursuance of rights issue had been traded in market for almost a year, and most of them would have changed hands several times, appellant’s appeal had become infructuous and, therefore, was liable to be dismissed - Held, yes - Ramniranjan Kedia Tourism Services (P.) Ltd. v. Aditya Birla Nuvo Ltd. (SAT - Mum.) 236

- Appellant filed appeal against that part of impugned order by which its promoters had been directed to take all appropriate actions to revamp management without further loss of time - However, it did not press appeal in view of statement made by Board that said direction was not mandatory, and that a final order would be passed on a consi-deration of material collected during course of investigation - Whether on facts, appeal was to be disposed of as infructuous - Held, yes - National Securities Depository Ltd. v. SEBI (SAT - Mum.) 256

Securities and Exchange Board of India Act, 1992

- Section 11A 199

- Section 15A 209, 227

- Section 15H 271

- Section 15HA 242

- Section 15HB 268

- Section 15T 218, 236, 256

SEBI (Collective Investment Schemes) Regulations, 1999

Manner of repayment and winding up

- Appellant had been operating a collective investment scheme - After coming into force of 1999 Regulations, it filed application for grant of provisional registration to Board - Application was rejected - In terms of regulation 73, appellant was required to prepare and send an information memorandum to its investors within two months from date of receipt of intimation of rejection of application, but it did not do so - Later on, belated information memorandum was sent by appellant in pursuance of which 43.76 per cent investors had given their positive consent with scheme and 40.38 per cent wanted to convert their investment into equity of appellant - In meantime, Board had directed appellant to refund money collected from investors - On failure of appellant to refund money, Board debarred appellant, its directors and other associated persons from operating in capital market - On appeal, appellant furnished explanation that it could not send information memorandum within time as business premises had been sealed by police in connection with criminal case and that all records had been seized - Whether, on facts, delay had been satisfactorily explained by appellant for reasons which were beyond its control - Held, yes - Whether, in view of circumstances of case and having regard to interest of large number of investors of appellant, appellant was to be directed to furnish a fresh information memorandum and submit a draft thereof to Board in terms of regulation 73 - Held, yes - Whether since process of allowing investors to exercise option was to start afresh, impugned order was to be set aside - Held, yes - Fortuna Agro Plantations Ltd. v. SEBI (SAT - Mum.) 262

SEBI (Collective Investment Schemes) Regulations, 1999

- Regulation 73 262

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003

Prohibition of manipulative, fraudulent and unfair trade practices

- Appellant-company came out with an Initial Public Offer (IPO) of equity shares - Allegedly, when directors of appellant-company realized that IPO was likely to fail, they brought in one ‘K’ as a financier to subscribe to IPO to save it from collapse - ‘K’ pumped in money and he and his family members were allotted certain shares out of which they sold major portion in off market transactions to three ladies who were said to be related to employees of appellant-company - Respondent Board held that funds paid by three ladies had come from appellant-company through a circuitous route - Board, thus, debarred appellant-company from accessing securities market for a period of three years - Whether in view of fact that impugned order did not refer to any material in support of findings recorded therein, it could be concluded that charge levelled against appellant-company did not stand established - Held, yes - Whether, therefore, impugned order was to be set aside and matter was to be remanded to Board to consider entire material afresh and pass an order in accordance with law after affording an opportunity of being heard to appellants - Held, yes - Vision Organics Ltd. v. SEBI (SAT - Mum.) 251

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003

- Regulation 4 251

SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

Payment of fees and consequences of failure to pay fees

- A partnership firm, engaged in business of stock broking, corporatised itself into appellant-company in June 1997 - Three of four partners of erstwhile firm became whole time directors of company and they continued to hold more than 40 per cent shares for three years since then - Appellant claimed fee continuity benefit in terms of para I(4) of Schedule III - Board rejected claim on ground that appellant did not satisfy condition of Circular No. SMD/DBA-II/CIR-22/2002, dated 12-9-2002, as all partners of erstwhile firm did not become whole time directors of company - Whether circular dated 12-9-2002 could have retrospective operation - Held, no - Whether, therefore, in view of fact that appellant had got incorporated itself in June 1997 and even got itself registered with Board as corporate entity on 31-3-1998, i.e., much before issue of circular dated 12-9-2002, terms of circular could not be enforced vis-a-vis appellant - Held, yes - Whether, consequently, impugned order was to be set aside and appellant was to be granted fee continuity benefit - Held, yes - Sodhani Securities Ltd. v. SEBI (SAT - Mum.) 258

Procedure for action in case of default

Liability for monetary penalty

- During inspection of books of account and other records of appellant-stock broker, a large number of irregularities, such as failure to maintain broker client agreements, failure to maintain book copy of contract notes, failure to segregate client’s funds from own funds, failure to use unique client code, grant of unauthorized trading terminals, etc., were noticed - Adjudicating authority imposed penalty of Rs. 10 lakhs upon appellant - On appeal, appellant contended that its banker insisted upon its right to transfer funds between appellant’s account and accounts of appellant’s client because that was purported policy of bank, and appellant, therefore, had to agree to such practice, but in 2003, appellant changed its bank and above practice was discontinued; that about 83 per cent of its trades being proprietary in nature, its failure to adhere to all procedural and regulatory requirements did not have serious effect on interest of investors; that violations pointed out were technical in nature; and that there was no complaint by any client against it - Whether appellant had no reason whatever to allow its banker authority to transfer funds from and to accounts of clients, since that was a gross violation of a statutory regulation - Held, yes - Whether segregation of every client’s account from broker’s account as well as use of unique client code leads to greater transparency in business operations of brokers and thereby enhances integrity and quality of securities market and, therefore, such requirements could not be held to be merely technical in nature - Held, yes - Whether similarly absence of broker client agreement would lead to failure in retrieval of information by regulators during any check or investigation, and that would seriously affect efficacy of regulation process and in that way, lapses on part of appellant clearly reflected a lack of exercise of due care, skill and diligence required of a broker and deserved to be viewed seriously - Held, yes - Whether, on facts, penalty imposed by Adjudicating Officer could not be considered disproportionately high - Held, yes - Mefcom Securities Ltd. v. SEBI (SAT - Mum.) 193

- Appellant’s appeal against an order of SEBI was dismissed by Tribunal upholding two findings recorded by SEBI to effect that appellant had executed two contract notes which was contrary to circular dated 31-3-1997; and that it had dealt with unregistered sub-broker - SEBI had also charged appellant for aiding and abetting fraudulent and unfair trade practices and for manipulation and malpractices - Appellant filed instant application seeking clarification of Tribunal’s order - Whether since Tribunal had not upheld any other finding recorded by SEBI except aforementioned two findings, it was to be clarified that findings of SEBI to effect that appellant aided and abetted fraudulent and unfair trade practices and was guilty of manipulation and malpractices had not been affirmed - Held, yes - Mangla Capital Services (P.) Ltd. v. SEBI (SAT - Mum.) 255

Stock brokers to abide by Code of Conduct

- Appellant was imposed penalty for allowing a barred stock broker to trade in shares of a company through it - Appellant’s case was that it had no knowledge of restraint order against that stock broker - Evidence on record revealed that restraint order against that entity was available in SEBI’s website as well as websites of other stock exchanges - Whether since appellant was a member-broker of BSE, least that was expected from it was that it should have accessed website of BSE to make itself aware of various notices, order and circulars issued by BSE or Board and had it done so, it would not have allowed said broker to trade in scrip - Held, yes - Whether therefore, appellant was negligent in performance of its duties as a stock broker and it failed to exercise due skills, care, diligence while executing trade in question - Held, yes - Pilot Credit Capital Ltd. v. Adjudicating Officer, SEBI (SAT - Mum.) 214

- Whether it is not part of a broker’s duty to question his clients when they come to him to place buy or sell orders; all that he is required to do is to comply with ‘know your client’ formalities as prescribed and carry out other obligations like issuing of contract notes, etc. - Held, yes - On basis of investigations conducted by Board into trading in scrip of a company, show-cause notice was issued to appellant alleging that it, trading as a stock broker, had executed synchronized trades on behalf of its client creating artificial volumes in scrip of company; and that as a stock broker, it failed to exercise due care and diligence and, thus, violated Code of Conduct prescribed for stock brokers - After considering appellant’s reply, adjudicating officer concluded that there was no nexus between appellant and its clients, but held that transactions could not have been executed without its active involvement and, accordingly, imposed penalty upon appellant - Whether when adjudicating authority had recorded specific finding that there was no nexus between appellant and its clients in executing synchronized trades, appellant could be held to be a party to creation of artificial volumes by executing such deals - Held, no - Whether in absence of any nexus, appellant, as a stock broker, was not under any duty to check trading of its clients and, therefore, impugned order could not be upheld - Held, yes - Pravin V. Shah Stock Broking (P.) Ltd. v. SEBI (SAT - Mum.) 246

SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

- Regulation 7 214, 246

- Regulation 10 258

- Regulation 26 193, 255

Statement of ownership

Form IV

[See rule 8]

1.	Place of publication	New Delhi
2.	Periodicity of its publication	Weekly
3.	Printer’s name	Amit Bhargava
	Whether citizen of India	Yes
	Address	2/22, East Punjabi Bagh New Delhi
4.	Publisher’s name	Amit Bhargava
	Whether citizen of India	Yes
	Address	2/22, East Punjabi Bagh New Delhi
5.	Editor’s name	Rakesh Bhargava
	Whether citizen of India	Yes
	Address	2/22, East Punjabi Bagh New Delhi
6.	Names and addresses of individuals	Taxmann Allied Services
	who own the newspaper and partners	(P.) Ltd.
	or shareholders holding more than one	2/22, East Punjabi Bagh
	per cent of the total capital	New Delhi

I, Amit Bhargava, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Dated 29-2-2008

(Sd.) Amit Bhargava

SEBI AND CORPORATE LAWS

Vol. 82, Part 3, for the week of March 3 – March 9, 2008